Parental choice of human capital investment

In this paper we present a model in which parents make schooling decisions for their children. We compare two educational regimes: public and private education. In the private education regime all human capital investment decisions are made by individuals. Under public education the government uses income tax revenue to finance one input to schooling. In the private education regime cycles may occur even though there are constant returns to scale in the augmentable factors. In the public education regime there are no cycles but poverty traps may occur. (C) 1997 Elsevier Science B.V.